Gold fell on Thursday, ending a four-day rise as the US Dollar rebounded, while oil extended gains after renewed Middle East tension. XAU/USD was trading near $4,050, having reached a two-week high of $4,165 on Wednesday. The US conducted strikes against Iran for a twelfth straight night, and Tehran retaliated by targeting US military bases in Jordan and Bahrain. Disruption risk around the Strait of Hormuz also spread to the Bab el-Mandeb Strait after Yemen’s Houthis attacked two Saudi oil tankers in the Red Sea.
West Texas Intermediate (WTI) climbed to its highest since 11 June and traded near $90 a barrel, up about 29% this month, reinforcing inflation concerns and expectations of tighter Federal Reserve policy. CME FedWatch showed markets assigning a 78% probability of a September rate rise, up from 52% a week earlier, while the 10-year US Treasury yield traded around 4.64%, its highest since 20 May. On charts, gold struggled around the 21-day SMA at $4,068 and remained below the 50-day SMA at $4,241 and the 100-day SMA near $4,490; RSI sat near 45 and MACD turned positive. Resistance is seen at $4,200, then $4,241, with $4,400 and $4,490 beyond, while support sits at $4,000 and TD Securities flagged $3,900/oz. Central banks added 1,136 tonnes of gold worth about $70bn in 2022.
Divergence Between Gold and Energy Markets Amid Geopolitical Unrest
We are seeing a sharp divergence between gold and energy markets as geopolitical conflicts escalate. While crude oil has surged nearly 29% this month to trade near $90 per barrel, gold has slipped to $4,050 after failing to hold its recent high of $4,165. This divergence is driven by rising inflation fears, which have pushed the market’s expectation of a September interest rate hike to 78%.
Given that gold is trading below its 21-day moving average of $4,068, we recommend derivative traders focus on defensive, yield-generating options strategies. Selling out-of-the-money bear call spreads above the $4,200 resistance level allows us to collect premium while gold remains technically capped. Historically, when the 10-year Treasury yield climbs to 4.64%, gold struggles to maintain upward momentum as investors favor interest-bearing assets.
Trading Strategies and Market Risks
If gold breaks below the critical psychological support level of $4,000, we expect a rapid drop toward the next major floor at $3,900. To trade this potential breakdown, we should consider buying put options or debit put spreads to capture the downside. Historical data shows that when gold breaks key round-number levels under high-yield pressure, downward moves tend to accelerate by 3% to 5% within two weeks.
Meanwhile, the shipping disruptions in the Red Sea and the Bab el-Mandeb Strait mean oil volatility will remain incredibly high. We advise using bull call spreads on WTI crude to participate in the upward momentum while strictly limiting our risk exposure. During previous geopolitical energy shocks, implied volatility for oil options has spiked past 40%, making outright option buying expensive, which is why spread strategies are highly preferred.
The strengthening US dollar and elevated yields mean we must remain cautious about any sudden bullish gold reversals. We suggest monitoring the US Dollar Index (DXY), as a sustained climb past recent highs will continue to suppress commodity prices. Managing our position sizes tightly over the coming weeks will be crucial as the market prices in the Fed’s next rate decision.
